Wallstreet or Rhineland?

by Colson on Sep. 17, 2008, under economics

wall_street_

The text added to this picture reads:“Federal Hall, 26 Wall Street, New York: It was on this site that the US Congress first met and where George Washington took the oath of office as the first president. Today, the “free enterprise” business titans of the Street are reeling from the mess of their own making”. There is no mistake about it. Nobel Prize winner Joseph Stiglitz called it the fruit of hypocrisy. Who am I to disagree with him. Indeed dishonesty, Ideological superstition in laissez-faire, irresponsibility, incompetence, greed and sheer criminality (Enron!), that’s what the crisis is made of. In a broader sense it’s the so called “Anglo Saxon” model which should stand trial: the unrestricted free market economy, cut throat competition and the shareholders in charge – hedge funds and private equity funds going for the quick buck included. “The creative destruction” of neo liberalism proves to be ruinous indeed.

This is a summary of the most recent catastrophes::

“Over the weekend, Wall Street’s Lehman Brothers went bankrupt and Merrill Lynch agreed to be sold to a competitor. Yesterday, the Dow Jones industrial average dropped 4.4%, its worst day since September 17 2001, when the New York stock exchange reopened following the September 11 terrorist attacks. Meanwhile, the unemployment rate has risen and home values continue to sink.” Today I already can add the € 65.- billion rescue money for AIG.  And what will be next tomorrow?

Maybe we should try something new. Which actually is something old: the Rhineland model. First and most important goal is the continuity of a company ( which is in the interest of all people who are stake holders so that not exclusively shareholders and shameless board members will benefit), consultation of all parties involved in order to reach some sort of consensus (which takes time, but will at least not leave clients and employees in the cold and have them and the tax payers pay the price) and government involvement whenever national interests or public services are threatened (which is a better guarantee for a future public infrastructure than leaving it to the forces of greed).

Wavatar Dino
Sep. 18, 2008

“Anglo Saxon” model which should stand trial
Ouch..

I agree that there is something wrong with the financial system.
Bing said that the misery in Wall Street is a karma.
It’s crazy in the financial world now.
And it gets crazier if you see this interactive graphic.

Wavatar colson
Sep. 18, 2008

@ Dino: Right, thank you. This Stanley Bing is really funny and damn right as well:

“When I think of the just plain dumb stuff that Wall Street and its assorted salesmen, analysts, enabling bankers and callow spin-meisters have visited upon working companies over the years, it makes me want to choke. The arrogance. The willingness to see hundreds, thousands, lose their jobs as a result of their pronouncements and manipulations. Masters of Business all, they have been taught to see corporations not as places that employ people and provide a product or service, but as numbers on a balance sheet, a balance sheet that serves only one group: Investors”.

Unfortunately it’s not trouble for investors only.They will survive ultimately. But especially the poor and deprived will suffer, I’m afraid.

And apart from the pathological make up of some personalities in the business and financial world, fundamentally the problem is the unrestricted sovereignty of the City’s and Wallstreet’s capitalism. And the curse of the Milton Friedman adepts.

Wavatar Gerwin
Sep. 18, 2008

Hi Colson,

Some responses:
1 – maybe you should remove James’ comment, it might be spam. At least, it looks remarkably similar to the ‘come gamble on my website’ comments. I would click the link though, to check it out.

2 – that building… we were there just a month ago, before embarking on the ‘happy taxi’ which took us back from Battery Park to 27th Street, playing happy music all the time. No relevance, I know, just to make you jealous and recollect great memories.

3 – I agree on the content. Stock exchanges were originally there for companies that outgrew the entrepreneurs pockets to raise funding for future growth. All an investor would have to do is pick a good company, invest, and wait for the returns. Then, however, the market was seen as a means of speculation. All kinds of derivatives were introduced. Rights to buy or sell shares without actually owning them (amplifying performance increases or decreases), for example. That is no longer related to real business activity. Furthermore, investment funds arose, that collect money from small investors and invest them at once. That’s also good, because the not-so-rich can share in the development of the country. Special purpose funds arose, that invest in green companies only, for example. Also, however, special purpose funds arose to rip short term profits that go at the expense of long-term development (hedge funds). That’s also bad (private equity is quite ok, by itself).

Thus actual business activity was sucked loose from investment activity and that became a business of its own. I perceive of the current crisis as creative destruction in the market for derivatives. The good message is that as long as people need the underlying business, there will be new firms producing the stuff. Now that Lehman is gone, different investment banks will emerge. Thus, in the end, employment will be restored. Not without pains, though, as many people will need ‘reactivation’ (training etc.) and for most there will be a temporary setback in spending possibilities.

All will be ok, but as the economy is an open system, one cannot cure part of the system without hurting other parts as well. As these other parts are not sick, however, they will recover.

Wavatar colson
Sep. 18, 2008

@Gerwin: As usual I’m grateful for your comment.

First of all, yes I guess you were right about “James”. Well, as you can see, he is no longer among us. May he suffer in oblivion.

Two, yes again. I am jealous. Lucky guy you are (I mean being together with Marjolein),

Three. Yeah, yeah. The parts probably will recover, but a lot of individuals, of innovative small entrepreneurs, of small creative businesses, of employees and their families and even communities will perish. “We” have ‘recovered’ from the thirties as well. A very traumatic experience for all common people who had to live through the Depression – a lesson my parents passed on to me. But with the help of some mild socialism the world did more or less recover indeed. In a way not very unlike what Bernanke and the Bushites seem to be doing now: bail the bastards out with public, taxpayers money. Unfortunately only to return gradually to the old fundamental mistake of real obstinate adepts: “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.”.

Let’s try again. Let’s introduce some mixed economy once more – capitalism with a human face or rather (democratic) socialism with some capitalistic spice. And stick to it. Let’s ban wild west free marketeers for eternity.

Wavatar sushihunt
Sep. 19, 2008

It’s always like this Pap. You see giants collapsing for the sake of restoring equilibrium no matter what system they adopt. Greed is always there… we blow up values out of the right proportion, if you remember the internet bubble, and some other market crashes. People live in uncertainty and chaos for a while, then they adjust, then everything will be back to normal.
This is one of the dip in the business cycles… but it happens… :)